PepsiCo Struggles Ahead of Q4 Earnings: Time to Invest or Stay Away?

Core Viewpoint - PepsiCo, Inc. is anticipated to report growth in both revenue and earnings for the fourth quarter of 2024, despite facing challenges in its North American market and product recalls [1][2][6]. Revenue and Earnings Estimates - The Zacks Consensus Estimate for fourth-quarter revenues is $27.9 billion, indicating a 0.3% increase from the previous year [2]. - The consensus estimate for quarterly earnings is $1.95, reflecting a 9.6% growth from $1.78 reported in the prior-year quarter [2]. - For 2024, revenues are projected at $92 billion, suggesting a 0.6% growth year-over-year, with earnings expected to reach $8.15, a 7% increase from the previous year [3][9]. Segment Performance - The North American convenient food business is expected to show subdued demand, impacted by inflation and changing consumer spending habits [6][7]. - The Quaker Foods North America segment has faced challenges due to product recalls, leading to a predicted 9% decline in organic revenues for the fourth quarter [8]. - Organic sales in the Frito-Lay North America segment are expected to remain flat, while the PepsiCo Beverages North America segment is projected to grow by 1% [7]. International Performance - The international business is expected to perform well, with notable revenue growth anticipated in various regions: 2% in Latin America, 6% in Europe, 13% in AMESA, and 4% in APAC [11]. Cost Management and Margins - Ongoing cost-management initiatives are expected to enhance supply chain efficiencies, with an anticipated adjusted gross margin increase of 130 basis points to 54.8% in the fourth quarter [12][13]. Stock Performance and Valuation - PepsiCo's stock has underperformed, losing 8.3% over the past three months, compared to declines in the broader industry and Consumer Staples sector [14][17]. - The current stock price of $151.90 reflects a 7.3% premium to its 52-week low and a 17.2% discount from its 52-week high [17]. - The stock trades at a forward P/E ratio of 17.71X, below the S&P 500 average of 22.42X, indicating a significant valuation discount [19]. Investment Outlook - Despite strong international performance and strategic initiatives, challenges in North America and inflationary pressures suggest a cautious investment outlook [22][23]. - Investors are advised to evaluate PepsiCo's ability to navigate these challenges and capitalize on growth opportunities before making investment decisions [24].